Contents 26 Prakash Transport aims at 30% increase in biz volume this fisc 28 Lack of demand worries scrap industry 29 Jan pig iron prices may remain subdued 30 Sponge iron November production falls y-o-y, rises m-o-m 31 India’s per capita steel consumption at 69 kg in 2017-18 32 Government 34 India’s Nov y-o-y crude output up 4.1%, m-o-m marginally up 35 Steel consumption to grow 7% in FY19-20: ICRA 36 Spot coking coal prices ease on low buying 37 Year-end cheer for motown as December sales move north 40 Ferro alloys offers decline on low demand 43 Global crude steel output down 5% in Nov m-o-m 44 Traffic handled by major ports up 5% in April-November 45 Indian Railways’ Nov iron-ore handling up 4% y-o-y 46 SAIL posts best ever hot metal production in a single day 47 Goss named CEO of Tata Steel, Thyssenkrupp JV 48 JSW Steel commissions pellet plant at Monnet Ispat 49 Essar Global repays all debt to Indian, foreign lenders 51 Corporate 53 Ferro alloy data 54 Price data 55 Production data 58 Consumption data
4 Steel Insights, January 2019
6 | COVER STORY Logistics logic
18 | Interview
Domestic bottlenecks and ore grades mismatch are leading to rising iron ore imports. How can steel mills overcome transportation challenges?
‘SRMB aiming to produce safe, sustainable, innovative steel’ But government needs to focus on policy changes that will enable mineral availability, says Ashish Beriwala, Director
21 | Interview
‘Coking coal prices may touch $195200/t in 2020’
39 | Feature
If there are supply issues in early 2019, prices will again shoot up, says Dr Neil J Bristow, MD, H&W Worldwide Consulting
Odisha iron ore output to cross 100 mt in FY19 India’s iron ore production may touch 220 mt in FY20 as Odisha miners expand production
42 | OPINION
Outlook for 2019: Commercial, Affordable Housing sectors to show continued strength 2018 was marked by volatility on account of global/domestic events
Cover Story
Logistics logic How can India’s steel mills overcome transportation challenges? Madhumita Mookerji
6 Steel Insights, January 2019
Cover Story
T
homas J Peters, an American writer on business management practices, had once said that, “Leaders win through logistics. Vision, sure. Strategy, yes. But when you go to war, you need to have both toilet paper and bullets at the right place at the right time. In other words, you must win through superior logistics.” Peters’ words could not ring truer. Because, there is no point in mining out an ore or mineral if it cannot be transported to the end-use plant on time and in a costeffective manner for manufacturing that end-product. Similarly, shipping in imported iron ore/coal or other input materials at competitive rates and in the right volumes is an imperative. Assured, cost-effective and timely supply of overseas iron ore and coking coal or other input materials is essential for India’s steel industry to sustain and grow. That’s not all, efficient exports of finished products for earning that precious foreign exchange is also equally important. But, as per reports, Indian steel mills are increasingly looking to tap global markets for iron ore since they find it difficult to transport the key raw material from local mines as they brace to increase domestic steel production against the backdrop of the two reasons: greater demand for the metal thanks to the administration’s infrastructure push; and the government’s ambitious target of 300 million tons (mt) of crude steel production by 203031, which again is expected to be absorbed on account of a higher anticipated GDP growth. For one ton of steel-making, the requirement ratio of coking coal is 1:1, while iron ore is 1:1.63 and fluxes 0.4. Crude steel production has risen steadily from 53 mt in 2007 to 101 mt in 2017. A source informs that because of domestic logistics challenges, which make it difficult to transport iron ore, India has become a net importer of this key raw material for steelmaking. Producers along the coast prefer to buy from overseas players because of an overloaded railway system which creates bottlenecks. The bottleneck is created essentially because freight and passenger tracks are one and the same in India and goods carriers often have to give precedence to passenger traffic. But, with India set to increase its steel production and become the second-largest producer of the commodity, overtaking Japan, its iron ore imports are also slated to
rise. For instance, as per data, India’s iron ore imports were at 12 mt in financial year 2014-15 but dropped to a little over 7 mt in 2015-16 and to a little less than 5 mt in the following fiscal. But they increased to almost 9 mt in FY18 and touched almost 5.8 mt in the first six months of the current fiscal. Steel mills say that the rise in domestic production as well as imports are a result of a mismatch in the grades available and the requirements of the steel mills. While most blast furnaces of domestic steel mills require high-grade lumps, the bulk of the incremental production from the mines was possibly lower grade fines. More iron ore demand from India in terms of imports means greater demand from global mining companies. But even if domestic ore is available at competitive prices, transportation is an issue. As per industry sources, price hikes (of ore) in the domestic market have been exorbitant in the recent past, making imports viable. Between July and September, prices of iron ore fines in Odisha, the largest producing state, rose 80 percent, while prices of lumps moved up 29 percent. Government-owned NMDC, the single biggest producer, raised prices twice last month. In the latest instance, it raised the price of lumps by 8.4 percent to `3,850 per ton and that of fines by 6.4 percent to `3,310 per ton. The company ascribed this to less production due to the rains and robust demand, with firming up of steel and sponge iron prices. Domestic production of iron ore is also rising. The country produced 210 mt in 2017-18. In FY19, the output is tipped to rise by 2-5 percent, helped by stable demand from the automobile and infrastructure industries, according to a report by CARE Ratings. Mining companies say supply bottlenecks
are escalating the landed cost of iron ore for steel units. They complain that there is an abundance of iron ore but miners are not getting enough railway rakes, as these are being diverted to the coal sector. Due to logistics constraints, the landed cost of the ore is shooting up for steel plants on the coast and they are sourcing more through imports. Also, there are limitations in terms of the availability of higher grade ore from domestic mines as they get older and the quantity of fines extracted is higher. As per the estimates of Nitin Gadkari, the Minister for Road Transport & Highways, Shipping and Water Resources, the cost of movement of goods through rail is `1-1.20 per km, road `2-2.20 per km and inland waterways, `0.20 per km, with the government, of late, putting a lot of stress on the last mode, it being the cheapest and cleanest. According to a shipping ministry statement, 1 horse power (HP) can move 150 kg on roads, 500 kg via rail and as much as 4,000 kg through waterways. What a big difference indeed! Similarly, 1 litre of fuel can move 24 tons per km on road, 85 tons on rail and 105 tons per km on waterways. Since waterways are still at a nascent stage in India, plants obviously prefer dry bulk commodity movement through rails. Poor logistics infrastructure is the biggest challenge being faced by Indian dry bulk cargo producing companies. Problems are bad roads, poor connectivity and sea port capabilities, inadequate rail transport capacity and nondevelopment of alternatives like inland waterways. For cost-effective management of goods, it is imperative to marry the different modes of transport in a seamless network so that the effective cost is lower.
Need for coastal transportation in RINL’s perspective Quantity in Million MT
Production quantity
Year
No. of rakes
Rail quantity
Road quantity (incl. ocean export)
Coastal
Total Despatches
2016-17
3.84
952
2.46
1.31
–
3.77
2017-18
4.50
1,102
2.87
1.57
0.06
4.50
2018-19 (Projected)
5.80
1,200
3.12
1.96
0.40
5.48
Destination
Freight by rail (` PMT)
Rate by coastal shipment (` PMT)
Savings (` PMT)
Expected Volume (MT ‘000)
Expected total savings (` in Cr)
Ahmedabad
4,195
4,067
128
120
1.54
Mumbai
3,073
3,028
45
60
0.27
Kochi
3,401
3,322
79
60
0.47
Steel Insights, January 2019
7
INTERVIEW
‘SRMB aiming to produce safe, sustainable, innovative steel’
A
How big is the market for TMT bars/long products in India in value and volume terms and atwhat rate is this market growing? There are a large number of unorganized players too. So, what is the size of the organised and total markets both and growth prospects? According to the report by the World Steel Association (WSA), India would pip the United States as the second largest steel consumer in the world. About 102.3 million ton steel is expected to be consumed in India in the next year, where there is a pressing need for infrastructure development. India is likely to remain the second largest steel consumer in the world for some time now. Almost one-third of the steel consumption in the country is of TMT bars, comprising a market of `12,000 crores
18 Steel Insights, January 2019
bout 102.3 million tons of steel are expected to be consumed in 2019-20 in India, which has embarked on infrastructure development. Almost one-third of the steel consumption in the country is of TMT bars, comprising a market of `12,000 crore annually. The sales of construction materials, including TMT bars, are estimated to grow at a compounded annual growth rate (CAGR) of 6.18 percent in terms of volume. The main demand pulling sectors of TMT bars in India are roadways, railways, Ministry of Defence, power industry, refineries and real estate. The individual house building segment is also now in focus in tier II & III cities and towns. At this juncture, in a free-wheeling interaction with Tamajit Pain of Steel Insights, Ashish Beriwala, Director at SRMB Srijan Pvt Ltd Group, says his company is aiming at producing safe and sustainable steel. Extensive in-house research has helped SRMB carve a niche in the industry and come up with viable new products which benefit the market. Some of these innovations have been ahead of time but have become the de-facto requirement of consumers over a period of time. According to Beriwala, government decision to boost infrastructure and real estate sectors will give much needed push to the demand for building materials, including TMT bars, paints, etc. However, the government needs to focus on bringing changes in policies which would enable availability of mineral resources such as coal and iron at reasonable prices to the industry in comparison to manufacturers which have been allotted mines on nomination basis in the past. Excerpts:
INTERVIEW
‘Coking coal prices may touch $195-200/t in 2020’
C
urrently, coking coal prices are moderately firm and are expected to remain so in 2019. Spot prices may soften a bit in the first half of the year, but, overall, prices are likely to remain in the range $190-210 per ton FOB Australia, says Dr Neil J Bristow, Managing Director, H&W Worldwide Consulting Pty Ltd. He adds that, initially, there could be a slight drop from the current levels, but if there is any supply issue in the early part of 2019, prices will again shoot up. India, with its growing power and steel sectors, will play a major role as the demand driver. However, there is no interest of overseas miners in India right now. Even for the Chinese, it’s not on their radar, Bristow tells Arindam Bandyopadhyay in an exclusive interview. Excerpts:
After remaining firm for the better part of 2018, global thermal coal prices have recently started softening. Met coal prices, on the other hand, have remained rangebound in 2018, after witnessing high volatility last year. What is you outlook for global coal prices in 2019? Let me start with seaborne metallurgical coal prices. Currently, coking coal prices are moderately firm and are expected to remain so in 2019. Spot prices may soften a bit in the first half of the year, but, overall, the prices are likely to remain in the range $190-210 per ton FOB Australia. As I said, initially, there could be a slight drop from the current levels, but if there is any supply
issue in the early part of 2019, prices will again shoot up. Other things remaining the same, in 2020, the average price could be $195-200 per ton FOB. This, of course, is the range one may expect under normal weather conditions. If there is a cyclone or heavy rains disrupting supply, met coal prices may shoot up to the level of $300 and above per ton FOB. That is what happened in 2008, 2011 and again in 2017. Generally, January-March is the period when we face cyclones and weather issues in Australia. If we look at the thermal coal market, both high-energy and low energy coal prices have been softening in recent weeks.
Steel Insights, January 2019
21
OPINION
Outlook for 2019: Commercial, Affordable Housing sectors to show continued strength Shishir Baijal
2
018 will be recorded as a year marked by consistent volatility – on account of both international and domestic events. Globally, several factors such as rising oil prices, simmering geopolitical tensions between the US and China, prospects of an escalation in trade war, uncertainty in Middle-east and Europe, have caused recurring stress to the markets. Domestically, the Non-Banking Financial Institutions’ (NBFC) liquidity crunch impacted stakeholders’ sentiments.
High crude oil price coupled with weakening Indian currency put pressure on the Reserve Bank of India (RBI) to raise interest rates. The real estate industry experienced the protracted impact of structural reforms undertaken over the last 24 months, such as Real Estate (Regulation and Development) Act, 2016 (RERA), Goods and Services Tax (GST), and Demonetization, that collectively changed the way business is conducted. The Indian real estate sector, while remained largely optimistic, had their sets of woes to deal with during the year with
India’s wealthy prefers estates in UK, US, Singapore & Canada
F
or India’s wealthy, the top preferred markets are the United Kingdom, US, UAE, Singapore and Canada, as per the latest survey by global real estate consultancy Knight Frank LLP. Hong Kong tops the ranking for the greatest number of sales in the ultra-prime residential market worldwide, with the highest number of transactions worth US$2.5 billion achieved in the last 12-month period ending August 2018. It was also the most expensive ultra-prime market, with an average price of US $52.8 million paid. New York and London took the second and third place, respectively. Knight Frank has launched the first-ever assessment of the global ultra-prime residential market, analysing sales over US $25 million around the world. According to the research, the top six ultra-prime city markets of Hong Kong, New York, London, Singapore, Los Angeles and Sydney reported 153 transactions above US $25 million in the 12 months to the end of August 2018 with a combined value of US $6.6 billion. The combined transaction levels in these cities grew by 12 percent in the two years since 2016 with growth set to continue. The recent studies highlight that the number of demi-billionaires, those with US $500 million or more in net assets, will rise by a staggering 70 percent from 200 in 2017 to 340 in 2022. Subsequently, the rise in the number of Indian demi-billionaires will propel outbound investments in key residential destinations of global significance. The inherent reasons for these markets could range from being a top global city to a second home destination or a ski resort destination.
42 Steel Insights, January 2019
various asset classes reacting differently to the global and domestic stimuli. Whilst we witnessed a healthy growth in office, industrial and retail sectors, we recorded rising interest in niche-segments such as co-working, co-living and student housing. Considering sustained policy focus on construction of crucial national highways and industrial corridors, we saw continued strength in logistics and warehousing with growing interest from occupiers and overseas investor community alike. The residential sector remained subdued. Although the supply side has done well given a healthy uptick in the number of launches, consumer demand has been lacking momentum especially in premium and luxury residential segments. However, we see an uptick in affordable housing sector – both from supply and demand side which leads us to believe that it would be a key driver for residential sector in coming times. Further, the Knight Frank Affordability Index, a measure of how expensive the housing market is, points at rising affordability in several prominent cities. In cities such as Pune, Kolkata and Ahmedabad, the Index was well within the comfort level of the benchmark, while in cities of NCR, Bengaluru, Chennai and Hyderabad, it hovered close to the benchmark. Going forward, we believe that the commercial sector would continue to perform well, although it might face the interim risk of supply shortage. Yet, the sector, along with industrial, retail and frontier segments like co-living, student housing, etc., should hold ground and continue to develop further. Additionally, the affordable housing should witness positive movement. It is important to remember that Indian economy’s secondary and tertiary sectors have attained a certain level of momentum, from where they will continue the forwardpush. Eventually, this should bode well for the residential sector too. As sustained growth takes place in these sectors, increasing financial security over the next couple of years should lead to a higher participation in residential real estate. The author is Chairman and Managing Director of Knight Frank India. Note: The views expressed here are those of the author and not of Steel Insights. The publication does not take any responsibility for the article in part or in full.
62 Steel Insights, January 2019
Tear along the dotted line
Tear along the dotted line